Now, to understand this strategy, you must focus and observe.

TRADING THE 5-MINUTE CANDLES

EMA Cross (5 period/12 period) (many folks 5 period/8 period – so you can paper trade and decide which one is better) (Primary Indicator)

RSI (14) (Secondary or Confirmatory Indicator)

Volumes (Secondary or Confirmatory Indicator)

STEP A: SETUP THE VWAP AND AND OBSERVE THIS NIFTY CHART (from 18 June 2018 to 22 June 2018)

What we can easily figure out is this:

A. When the price decisively breaks the VWAP, the Nifty goes into a free fall.

B. The price decisively crosses above the VWAP and the Nifty scales up.

C. When the price decisively breaks the VWAP, the Nifty falls.

C-D. Notice that the Nifty rises in this phase, but is still below the VWAP.

D. The price breaks the VWAP, the Nifty falls for a few candles.

E. The price rises above the VWAP, and this time the rise is relentless.

The observations are:

What is sure is that when price rises or falls below VWAP, it leaves profits on the table so long we take the correct action.

There are up and down spikes in between A-B-C-D-E. But since the price is above or below the VWAP, there is no way of figuring out these movements UNLESS there is another indicator that helps us figure these out.

There is no way of telling how long a rise or fall will last unless we are helped by another indicator.

Therefore, let us know plot the EMA Cross (5-12) and the RSI.

STEP B: SETUP THE CHART USING VWAP, EMA CROSS AND RSI

Please open the VWAP chart above in a separate window as you will have to correlate. Let’s start:

On 18 June 2018, when the price fell below the VWAP, the 5 period EMA crossed below the 12 period EMA and the RSI too fell to 39.96. The volumes too were above the 20 Day MA.

Bearishness was confirmed by all 4 indicators.

A short trade was confirmed.

Between Phases there was no significant EMA crossover till 20-6-18 at 10.35 AM.

On 20 June, at 10.35, the 5 Period EMA crossed above the 12 Period EMA. At this time the price was below the VWAP.

The RSI too started rising.

Within 15 minutes, the price crossed the VWAP and went on to head much higher.

In this case the EMA gave a signal in advance.

Let’s check what happened on 21-6-18

On 21 June, at 9.25 AM, the price fell below the VWAP, and after 15 minutes the 5 Period EMA fell below the 12 Period EMA.

The RSI too started falling.

In this case the VWAP reading gave a signal in advance.

Okay, by now you would have got the point and I won’t get into checking in between phases any more because you can do that by setting up the chart. Let’s flesh out the trading strategy:

THE 5 MINUTE CANDLE TRADING STRATEGY (FINAL POINTS)

The VWAP and EMA are the primary indicators to follow. RSI is secondary – it confirms the trend. Volumes are average-important for this strategy.

When the price rises or falls above or below the VWAP, the movement continues for at least 10+ candles (50 minutes) as we have seen in the example above. But this is not a must. In Phase A, the fall includes 80 candles, BTW.

The EMA Cross, another primary indicator, also clues traders on to entry and exit points. It can provide clues before, after and in-between the stages in which the price crosses above or below the VWAP.

Spiking volumes at any stage can provide vital clues. For example, on 22-6-18 at 11.50 AM, the volumes spiked when the price was above the VWAP. The EMA crossover happened as well, and thereafter the prices started spiking.

The RSI should be used to confirm the EMA/VWAP signals.

All trades should be squared up intra day. You should be happy with small profits or losses.

This is it. Use this guide and perform paper trades and see for yourself whether this strategy works for you. I also have kept this simple and not included other indicators because this strategy works.

Finally, remember that every trade setup can fail and therefore please follow this advice:

Nicely and aptly explained thank you sir. Sir what is in your opiNion will be the expiry or tomorrow be like , when you see data of OI of all major shares in nifty has increased by 2% to 5% . 10700 is a support can be a pull back be achieved vis short coverings (wrt OI)

For Risk-Reward Ratio check the tweet at the end of the article.. assuming a 60% success rate, the worst case will be that your first 4 out of 10 trades will not work.. so worst RRR is 100:0 for the first 4 trades. Work on that probability and allocate your trading capital accordingly.

Sir, thank you for the post! I had tried the 5 minute candles on the Bank Nifty today and at about 1:26pm I identified the market to be going down @26,215 (price cut below VWAP, RSI below 50, 5ema cut below 12ema and had decent volume on sell)…but the index did not move below 26205 but rather moved on the upside…can you kindly clarify what would have led to my false judgement here? The CPP was near 26220, was it this support that nullified the other indicators? Or did I miss out on reading the candles better? Or……thank you!

Sir, thank you for the suggestion! I did try the 15M charts today and I felt it does make a difference. Also thank you for the post on MACD…along with the indicators above I had added MACD 1HR…just sharing my observtion – all indicators pointed bearish in the morning except MACD 1HR which was neutral with a bullish bias and eventually the BankNifty turned positive. I hope I can extrapolate this reliability on MACD 1HR. 🙂